European telecoms companies will need to choose between vertical integration or horizontal disintegration to navigate a complex set of challenges which are already giving C-suites headaches, according to GlobalData.
“Interventions by activist investors, the need to ‘right-size’ workforces, fast-changing technology, hyper-competition, multiple layers of regulation, ESG challenges, and the digitisation of everything have got the heads of European telcos spinning,” says Robert Pritchard, senior enterprise technology and services analyst at GlobalData.
The research group’s analysis finds that technology, evolving value chains, and extreme competition are combining with the need for further infrastructure investment to present management and investors with a tsunami of challenges.
“There are two possible solutions: highly sophisticated and agile management for a vertical delivery model, or simplification of the supply and value chain,” says Pritchard. “Most European incumbents believe they can follow the integrated approach, but at the same time they are tacitly accepting the need for value chain restructuring.”
Already, many fixed and mobile physical infrastructure elements are being sold/floated, put into joint ventures, or delivered through emerging partnerships with, for example, cloud hyperscalers.
“Ultimately, telecoms service providers with insufficient scale and resources for the full delivery stack will continue to split into infrastructure activities (NetCos) and retail operations that will assemble propositions and solutions from multiple partners (ServiceCos),” says Pritchard.
“A key driver of this now is intervention by activist investors which, ironically, may turn out to be a key element of market consolidation across a European market that is still characterised by multiple regulatory regimes and a tendency for intervention by national governments.”